Friday, August 17, 2012

In the United States, any income that a person makes is
taxable. The problem comes when the average person does not understand the definition
of the word "income." Income is money that you earn through your job,
your investments and anything else that increases your net worth.

If you go to work and collect a paycheck, then you are
taxed on that income. After your taxes have been withheld, you can use your
income to purchase anything you want. If you are using coupons for
travel expenses, then you can save money and help your income to last
longer.

When you win a prize, whether it is cash or not, that is
considered to be income that improves your net worth. If you are trying to find the best
entertainment by entering sweepstakes for vacations and you win a trip to
Bermuda, then that is considered income that you have to claim.

Claiming
Income On Your Taxes

Anytime you receive income, in any form, you must claim it
on your state and federal income taxes. Whether you win $5 on a scratch-off
lottery ticket or a $30,000 car, that is income that must be claimed. When you
claim this income, you can deduct the cost of the lottery or raffle ticket you
bought to get a final value. If you bought a $5 lottery ticket and won a
$10,000 vacation, then you would need to claim $9,995 on your taxes as income.

Why Does
The Government Levy A Tax?

The state and federal government collect taxes so that they
can continue to operate and offer valuable services. The perception is that our
tax dollars go to the IRS to fund secret government projects. The truth is more
significant, but not nearly as exciting.

Where Do
Our Taxes Go?

National
Defense

The federal government
spends approximately 20 percent of our tax money on national defense. This
includes the operation of military bases at home and overseas, paying our
military personnel, investing in equipment and offering financial aid to
foreign countries.

Social
Security

The debates about the viability of the Social Security
system and whether or not it can be sustained for the long term continue to
rage on. As with national defense, the federal government invests approximately
20 percent of tax revenue into social security. This funds retirement income
for seniors, disability income for those unable to work and financial
assistance to families in need.

Public
Medical Programs

The federal government uses 21 percent of our tax dollars
to fund health care programs such as Medicaid and Medicare. These programs
allow low income families, people without health insurance and the elderly to
get the medical care that they need. It also helps to offset some of the
ongoing costs for people who are disabled and are unable to care for
themselves.

Supplemental
Programs

The federal government takes 13 percent of our tax dollars
and funds what it refers to as supplemental programs that fall into a variety
of categories. Some of these programs include school lunches, earned income tax
credit refund for low income families and child care programs.

Infrastructure

The federal government is constantly investing in new
roads, bridges, energy sources and other infrastructure projects. In some
cases, the federal government will give public works money to the states to use
as the states see fit. In other cases, the federal government will directly get
involved with public works projects.

National
Debt

The remaining tax money is spread around to various
government projects and used to pay as much of the interest on the national
debt as possible.

When you win a cash or noncash prize in the United States,
you are going to be asked to pay income tax on it. Without that income tax, the
federal and state governments would not be able to offer public services.